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Weekly Global Update for October 21, 2015

Europe Update

August electronics related production data were just released by Eurostat:

Industrial production dropped slightly for the EU27 with Germany and Italy declining and France and the UK growing (Chart 1).

Electronic equipment production was up 3.3% in August 2015 versus August 2014 and up 1.4% sequentially compared to July 2015 (Chart 2). However the rate of growth appears to definitely have peaked on both on an annualized (12/12) and 3-month (3/12) basis (Chart 3).

Automobile production increased 18% compared to last August but was down 7% sequentially from July (Chart 4).

Aircraft/aerospace production was little changed from July but increased 17% compared to August 2014 (Chart 5).

Production of instruments and appliances for measuring, testing and navigation remained strong (Chart 6) but medical electronics output continues to fluctuate significantly (Chart 7).

Semiconductor shipment growth to Europe is in balance with electronic equipment growth – when both are denominated in euros (Chart 8).

European PCB shipments have declined recently (Chart 12) but Europe’s PMI leading indicator points to growth ahead (Chart 13). However considering the weak economic conditions and ongoing political unrest we are wary about near term growth prospects.

Chart 14 summarizes the annualized (12/12) and 3-month (3/12) growth of the European electronics supply chain. A value of 100 indicates no growth versus the same period a year earlier.

Source: Eurostat with Custer Consulting Group

China/Taiwan September Electronics Production – Apple’s Impact

Electronic equipment production jumped in Asia/Pacific in September, at least partially due to Apple’s autumn release of its iPhone 6s. A group of 11 ODM companies saw sales grow 29% sequentially from August to September (Chart 15) with Apple suppliers including Foxconn (Chart 16) and Pegatron (Chart 17) as major drivers.

Smartphone-fueled robust market increases may be harder to repeat in the future. Smartphone growth is slowing and about 60% of Apple’s revenues come from iPhones (Chart 18).

Source: Company financial with Custer Consulting Group analysis

3Q’15 Smartphone Shipments (Charts 19 & 20)

TrendForce reported that worldwide smartphone shipments for 3Q’15 grew by 9.1% over the previous quarter and totaled 332 million units.

Samsung is still the market leader, but its market share in Q3 has fallen below the 25%. As a result, the company has reduced its projected Galaxy S6 shipment to 40 million units. Notably, the company is yet to ship 10 million units of its newly launched Galaxy Note5 phone.

However, the company continues to lose ground in the low-end and mid-range smartphone spectrum due to fierce competition by Chinese makers. By TrendForce estimates, Samsung will see its first ever decline of annual smartphone shipments in 2015 with a 1% year-on-year drop. On the other hand, the Trendforce anticipates Apple to keep the momentum of the iPhone 6 duo with the new generation iPhone 6s family. Apple is expected to ship a total of 223.7 million units in 2015.

In China, Chinese smartphone vendors are leading in volume and are responsible for 150 million units, a 16.3% increase quarter-over-quarter. Most notable is Huawei, which did above what analysts were expecting.

Huawei becomes the first Chinese smartphone brand to reach 100 million units in shipments and cements its position as the third-largest vendor worldwide.

Reductions in Memory Spending Will Result in 3.3% Decline in Spending in 2016

Worldwide semiconductor capital spending is projected to decline one percent in 2015, to $63.9 billion, according to Gartner, Inc. This is down from the 2.5% growth predicted in Gartner's previous quarter's forecast. The forecast for 2016 is unchanged at a 3.3% decline over 2015.

"We are continuing to see weakness in end-user electronics demand in response to an uncertain economic environment, which is putting a damper on 2015 spending," said Takashi Ogawa, research vice president at Gartner. "Next year we are anticipating DRAM manufacturers to respond to oversupply conditions with dramatic deductions in their investment plans."

Capital investment policies of leading semiconductor vendors have maintained a cautious attitude against the background of sluggish electronics demand. Intel has announced further capital spending cutbacks since Gartner's previous forecast update, as have outsourcing companies (foundry and semiconductor assembly and test services [SATS]) and integrated device manufacturers (IDM).

Capital spending in memory will decrease by $0.8 billion compared with Gartner's second-quarter forecast. The spending forecast in the DRAM sector has a strong downward adjustment to only 0.2% growth for 2015 from 29% in the last forecast, as PC and ultramobile demand slows more significantly.

"In the DRAM market, weak end-market conditions combined with new foundries coming on line at Samsung and SK Hynix have created a weaker market than anticipated in our last forecast," said Ogawa. "As a result, we anticipate that DRAM manufactures will move more quickly from investing in new capacity to a maintenance and upgrade existing capacity mode of operation."

In the NAND sector, the latest forecast upgrades growth for spending to 0.1% in this year from negative 19.4% in the previous forecast. Gartner predicts that memory manufacturers will switch 10% of capacity investments from DRAM to NAND in late 2015 and 2016. DRAM manufacturers will respond to weak market conditions by slowing investments in late 2015 and early 2016.

Top 20 Automotive Semiconductor Suppliers

Research in China published a list of the major automotive semiconductor suppliers per Chart 22. Global automotive semiconductor market will grow 5.7% y/y from USD 28 billion in 2014 to USD 29.6 billion in 2015.

Walt D. Custer

Walt Custer is an industry analyst focused on the global electronics industry. Prior to forming Custer Consulting Group he was Vice President of Marketing and Sales for Morton Electronic Materials, a global supplier of specialty chemicals and process equipment for the PCB industry.

Custer has been a member of the IPC trade organization since 1975 where he received both the President's and the Raymond E. Pritchard Hall of Fame Awards. He is currently a member of the IPC Executive Market & Technology Steering Committee. Custer is also a Director of the EIPC European PCB trade organization.

He authors regular “Market Outlook” columns for Global SMT & Packaging magazine, the Journal of the HKPCA and the TTI MarketEYE website.